Choosing The Best Europe ETF

November 20, 2013

Playing Europe’s recovery is a great idea, but the devil's in the details.

Of all the big headline stories in 2013, the European rebound is one of the less-talked-about stories that has, to some extent, flown under the radar.

Just over a year ago, the euro sold off close to 1.20/dollar as fears lingered about a systemic breakdown in the eurozone and its currency. But since then, the euro has rebounded back above 1.35/dollar.

In fact, the euro is one of the top-performing currencies against the dollar in 2013, gaining more than 2.3 percent—this gain comes even after the European Central Bank’s most recent surprise of a 25 basis-point interest rate cut, which dropped short-term borrowing costs to 0.25 percent.

European stocks have also seen a turnaround. While Europe-focused ETFs have shown impressive returns, fund flows have been even more impressive, suggesting a resurgence in investor confidence in the Europe.

Here’s a table of flows for some of the largest and most liquid broad Europe ETFs, including two currency-hedged ETFs.

Ticker 2013 Flows ($M) AUM ($M) % of AUM (since 1/1/2013)
VGK 6,200 12,569 49%
EZU 3,881 6,847 57%
FEZ 2,610 4,449 59%
IEV 933 2,414 39%
FEP 237 288 100%
FEU 88 145 61%
ADRU 1 17 6%
DBEU 3 8 38%
HEDJ 429 509 84%
As of 11/18/13

If you're bullish on Europe at the moment and considering Europe ETFs, there are two key factors that need to be tackled.

The first is whether you want Europe or eurozone exposure. The second is whether or not you want currency-hedged exposure.

Like so many segments of the market, not all Europe-focused ETFs are equal.

Europe Vs. Eurozone

Interestingly, the most popular Europe ETFs seem to be pretty evenly split down the middle between Europe and eurozone exposure. For example, the $12.6 billion Vanguard FTSE Europe ETF (VGK | A-95) casts a wide net, capturing all developed European countries.

Meanwhile, the $6.8 billion iShares MSCI EMU ETF (EZU | A-57) specifically targets only European Monetary Union (EMU) member countries. This means EZU excludes the U.K., Switzerland and Sweden. That’s significant, as these three countries combined make up more than 50 percent of Europe’s total market cap.

Moving down the list, the $4.4 billion SPDR Euro Stoxx 50 (FEZ | C-59) is another eurozone-only fund, holding 50 of the largest companies from the EMU. Then we have the $2.4 billion iShares S&P Europe 350 ETF (IEV | C-96), which, like VGK, includes all developed European countries, but targets 350 of the largest companies.

 

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